Guaranteed minimum pension conversion provisions
This technical consultation seeks comments on draft secondary legislation amending Finance Act 2004 for calculating pension input amounts for annual allowance purposes following guaranteed minimum pension conversion.
HM Revenue and Customs (HMRC) has published draft regulations for a technical consultation. The draft regulations make amendments to the calculation of pension input amounts where there has been a guaranteed minimum pension conversion made in respect of cash balance and defined benefit arrangements for the purpose of the annual allowance charge.
Under current rules, when pension schemes equalise Guaranteed Minimum Pensions (GMPs) using the DWP’s statutory conversion method, some protections can be lost. This means certain deferred members may lose their Deferred Member Carve-Out (DMCO) protection and face unexpected annual allowance tax charges.
This instrument ensures those protections are maintained after GMP conversion, regardless of the method used. It amends the tax rules, including how the annual allowance is calculated, so that where GMP conversion is carried out, deferred members who would have qualified for the DMCO continue to benefit from it.
As a result, members should not face a worse tax outcome simply because of the method chosen to equalise benefits.